Trade of the Day: Sell Micron Technology, Inc. While It’s Overbought

Shares of semiconductor companies such as Micron Technology, Inc. (NASDAQ:MU) rallied nicely over the past few weeks as the broader stock market recovered from the late-January/early February volatility spike. In fact, semiconductors have been a leading group of stocks within one of the strongest sectors — technology.

Source: Shutterstock

However, MU stock in particular has now once again reached the very upper end price target by my work, and it’s time to take some profits through the lens of proper risk management.

When I last discussed Micron stock on Feb. 12 I offered that a key technical support area had been reached and that a good reward to risk trade was setting up. Since then MU stock has rallied 30% on a daily closing basis and reached the very upper end of my trading range.

So you know, Micron is scheduled to report its next batch of earnings on March 22, which is to say that for near term trades it is in my eye best to sit out the earnings report.

Micron Stock Charts

On the multiyear weekly chart we see that MU stock in the first week of February revisited the lower end of the up-trend (black parallels), which at the time also coincided with horizontal support as marked by the blue box.

The rally since has pushed the stock back up to the very upper range of the channels. From where I sit, this is as good a spot as any to take at least partial profits on “swing trades.”

On the daily chart, note that the support area MU stock reached in early February also coincided with near-term horizontal support around the $40 mark on a daily closing basis. The rally since now has the stock well overextended above its near-term moving averages. At the same time the daily MACD momentum oscillator is back at highs that previously saw the stock take a rest.

As such, although I see the longer-term growth prospects of a company like Micron, from a tactical perspective when stocks reach the very upper end of their trading ranges I sit up and take notice and reduce long exposure through the lens of sound risk management. As one of my former mentors used to remind me daily; buy low, sell high.